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Dow Pens Agreement with Solazyme - Analyst Blog

The Dow Chemical Company
(
DOW
) announced that it has penned a contingent offtake agreement with
Solazyme
(
SZYM
), a renewable oil and bioproducts company. Under the agreement,
Dow will obtain non-vegetable microbe-based oils from Solazyme
until 2015.

However, the agreement is contingent on Solazyme's capacity to
supply oils according to specifications laid down by Dow along with
other terms and conditions pertaining to the deal.

Dow uses these oils in dielectric fluid applications, which
offer added safety from fire due to higher flash points. They also
offer extra functionality, which may perk up the operating
efficiency and extend the useful life of transformers. As per the
agreement, the final price of the oil will depend on certain terms
and Solazyme's sugar-based feedstock costs will also be taken under
consideration.

In addition, the two companies have also entered into a Phase 2
Joint Development Agreement (JDA2). This is an exclusive and
multi-year extension of the existing joint-development agreement.
The agreement includes accelerated commercialization timelines due
to Solazyme's speedy progress in the production of tailored algal
oils. Solazyme's capability of scaling up its custom-made algal oil
feedstock will help Dow in conducting additional application
developments.

Dow is focusing on bringing innovative solutions to the power
industry and the JDA2 agreement is a step in that direction. Dow is
convinced that it is well-positioned to commercialize these oils
and has already made progress on the application work. Dow expects
that the agreement will enable the company to pursue its aim of
commercializing bio-based dielectric insulating fluids and it is
counting on Solazyme's capability of supplying tailored algal
oils.

Last month, Dow announced its first quarter 2012 results. The
company earned 61 cents a share on an adjusted basis in the
quarter, but this was below the 82 cents earned in the year-ago
quarter. Its revenues went down marginally from last year to $14.7
billion in the quarter. The company managed to beat the Zacks
Consensus Estimate on bottom line but failed to meet top line
expectations.

Dow did not provide any guidance in particular but said that it
expects the economy to recover at a faster clip in the second
quarter and the rest of the year. However, Dow is hopeful of
meeting its targets in the short and long runs, even if the economy
does not turn in its favor.

Dow faces stiff competition from
EI DuPont de Nemours & Co.
(
DD
). We currently have a long-term Neutral recommendation the
company. The stock maintains a Zacks #3 Rank, which translates into
a short-term (1 to 3 months) Hold rating.

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